Many retail investors choose to invest in mutual funds because of the peace of mind that comes with them. You don’t need to worry about stock picking or portfolio management: that’s what you’re paying for when you invest in a mutual fund. But while a mutual fund might be a “set it and forget it” type of investment, investors still need to do their homework to find a fund that performs well consistently over time.

If you’re looking for the best performing mutual funds, you can’t just look at the current return. You need to go back further and look at the past five years of returns (minimum). Evaluating a fund based on its five-year performance is a good way to get a feel for how it’s managed, what types of returns you can expect, and what you’re getting for your money.

Here’s a closer look at what it means to buy into a successful mutual fund, as well as a peek at some of the best performing mutual funds of 2022, based on their five-year returns.

Find the best performing mutual funds

What Defines a Successful Mutual Fund?

Mutual funds need to provide investors with both peace of mind and market-beating returns. More importantly, they need to meet these two criteria consistently, or risk losing investor buy-in. A successful mutual fund is one that defines its objective, sticks to that objective, adapts its strategies and continues to produce results for investors over the long-term. As a result, much of the fund’s success comes from the portfolio manager.

As investors evaluate different funds, the performance of the fund says a lot about its management. Look for consistent, high-performing funds, long-tenured managers, low expense ratios and other signs of a fund that’s capable of delivering consistency. Remember, for a mutual fund to truly be a “set it and forget it” investment, you need to have peace of mind that it’ll outperform relative to the market in any situation.

Look for funds that generate consistent above-market returns, with little deviance from major index movements and few-to-no expense fees to eat into returns.

The Importance of Five-Year Trailing Returns

Trailing returns are one of the best metrics for evaluating any type of managed fund. They give you a direct and quantifiable look at the fund’s ability to continually succeed, and to outpace indexed returns. When it comes to evaluating mutual funds, investors should look at five-year trailing returns, as a rule of thumb.

Five-year returns give a clear picture of how well the fund performs over time and in the face of different macroeconomic trends. Five years is also enough time to smooth out the ups and downs of the market’s volatility on a month-over-month basis, to show a clear trendline for performance. It provides a more complete picture than one-year performance and gives investors a more succinct snapshot than longer 10-year returns. It’s the sweet spot for evaluating a fund’s performance capabilities.

Trailing returns can also illuminate a fund’s ability to adapt. For instance, they can mark improvement if the fund’s management has changed hands. Or, they can illuminate areas of overexposure in contrast with sector performance. Ultimately, all investors really need to do is stack a five-year mutual fund chart next to a five-year chart of the S&P 500 to get a basic picture of the fund’s potential.

5-Year Top Performing Mutual Funds

With the five-year trailing returns benchmark in mind, let’s take a look at 10 of the best performing mutual funds and the returns they’ve been able to proffer to investors during that time period:

  • Pax Large Cap Fund Individual Investor (PAXLX), 16.96%
  • Goldman Sachs Capital Growth Inv (GSPTX), 16.42%
  • Payson Total Return (PBFDX), 16.22%
  • Pear Tree Quality Ordinary (USBOX), 16.03%
  • Sarofim Equity (SRFMX), 15.82%
  • American Century Sustainable Equity Inv (AFDIX), 15.71%
  • Fidelity Series All-Sector Equity (FSAEX), 15.52%
  • Parnassus Core Equity Investor (PRBLX), 15.51%
  • State Street US Core Equity Fund (SSAQX), 15.46%
  • T. Rowe Price U.S. Equity Research (PRCOX), 15.40%

Note that the variance for most of these funds is very slim. It’s also higher than the five-year average return of the S&P 500 of 11.51%. Investing in any of these funds means being able to bank on long-term market-beating returns that are consistently above the average.

Strong returns aren’t the only reason to invest in these top performing mutual funds. Most of them have expense ratios below 1%, tenured management of more than five years and Morningstar Ratings of 4/5 or 5/5, signaling responsible fund management and strong performance. These factors and the comparable returns they’ve created are prime indicators for investors seeking peace of mind with a mutual fund investment.

Selecting the Best Mutual Fund

Choosing the best performing mutual fund goes beyond looking at five-year returns. Investors need to get a feel for how the fund manager executes their duty. What level of risk does the fund burden? Moreover, what type of allocation does it maintain? What are the objectives and strategies outlined in the fund’s prospectus? All these variables and more add up to a picture of fund performance.

Want more tips on how to evaluate the best performing mutual funds? Discover the best investment newsletters for more insights and recommendations. You’ll get the inside scoop on funds that are outperforming the market, as well as valuable information about what to look for before you invest. It all adds up to a more confident investment: one that you can truly set and forget.